Oil prices fell as the US mulls releasing up to 180 million barrels from its oil reserves, its largest draw in almost 50 years. The news sent energy stocks in European and Aussie markets lower, adding to wider concerns about Russia demands payments for gas be in roubles. Aside from this, Asian markets fell after investors saw a fall in China’s PMI readings. ASX closed lower as an insto trade in the closing match pulled the index lower from a 0.5% high to a fall of 0.2%.
Good morning. I’m Melissa Darmawan for Finance News. This is your market outlook.
The Australian sharemarket is set to fall after we saw stocks move to the downside.
US stocks fall as Biden Administration taps reserves again
Wall St accelerated to session lows, closing a rough end to the first quarter. The final trading day of March, the first three months of the year, was certainly a rocky one, a period of quarterly rebalancing. We saw the S&P 500 fall 4.9 per cent for the quarter, its worst performance since March 2020.
Though a run through on the day, the Dow Jones lost 1.6 per cent to 34,678, the S&P 500 fell 1.6 per cent to 4,530 under the 4,600 level, and the Nasdaq dropped 1.5 per cent to 14,221.
We saw similar percentage falls between the major indexes on its second straight day of losses. We saw stocks dip yesterday by a fraction after back-to-back weeks of gains and a strong start to the week.
Investors came in and bought the dip, pushed up these beaten down technology names, but we saw selling pressure to close off this quarter.
Treasuries also pared the worst losses seen in decades, the US 10-year yield fell by 3 points to 2.33 per cent and the 2-year dipped by 1 point to 2.32 per cent, a flattening of the yield curve. This week we saw the 2 to 10 year spread invert for the first time since September 2019, a historical indicator that a recession is likely in 2-years time.
Then on the sector front here with the S&P 500, losses across the board. Financials as the worst performer, down 2.3 per cent while you’ve got info tech up there, down 1.6 per cent and communication services also down in the order of 2 per cent. Utilities shed the least by 0.2 per cent, followed by consumer staples. There were no places for investors to hide.
“War time bridge” says Biden
We saw shares move to the downside after President Biden issued an order to tap into oil reserves in an effort to help bring down skyrocketing petrol prices. The President addressed those head on calling for a release of a million barrels of oil each day for six months for a total of 180 million barrels.
It’s the biggest energy tap into the energy reserves, though analysts say that it’s not enough, it will barely cover two days worth of oil demand around the world.
President Biden said that the move will make a difference however cautioned that it will take time, calling it a “war time bridge” until production ramps up later this year.
OPEC+ maintains output targets
Meanwhile, OPEC + will maintain plans to slowly raise oil output targets by more than 400,000 barrels a day starting on May 1. Market participants were expecting oil producers to increase output in order to bring down oil prices around the world, which have reached near all time highs due to the war between Russia and Ukraine.
Inflation eyes largest increase since 1982
Meanwhile, in fresh economic news, the personal consumption expenditures index or PCE, a key figure that the Federal Reserve watches, showed that inflation rose 6.4 per cent from the same time a year ago in March.
The figure reinforces the narrative around the Fed’s focus to hike interest rates to combat inflation, given that it’s above its target of 2 per cent as consumers really feel the squeeze in their back pocket.
This index measures the prices that consumers pay for goods and services but excludes volatile items like food and energy, according to the US Bureau of Economic Analysis while jobless claims rose by 14,000 to 202,000 last week.
Negative territory but S&P 500 is 5% away new record high
So yes, stocks finished on a red note, compounded further by Russian President Vladimir Putin saying that Russia will halt gas supplies to Europe unless payments are made in roubles. Despite this, Main St has seen Wall St come out of bear territory to correction territory and now, the S&P 500 is around 5 per cent from striking a new record high.
We have seen a choppy market and it’s been pretty much like this since December last year, and we have earnings season in the US starting this month.
Nevertheless, the economy is at a point of strength where it can withstand the interest rate hike scheduled by the Fed and analysts still expect the economy to grow at a slower pace. However, questions do lie if the economy can withstand oil prices at US$150 to US$200 a barrel on top of this with the war in Ukraine. Oil fell 6.5 per cent to US$100.80 a barrel amid this news, gold rose, so did the greenback, even the Japanese yen got some love as investors searched for safety.
Figures around the globe
European markets closed lower. Paris fell 1.2 per cent, Frankfurt lost 1.3 per cent while London’s FTSE closed 0.8 per cent lower despite data Britain’s economy growing faster than expected from the December quarter. On the London Stock Exchange, Rio added 0.1 per cent, BP fell 1.9 per cent and Shell lost 0.1 per cent.
Asian markets closed lower. Tokyo’s Nikkei fell 0.7 per cent, Hong Kong’s Hang Seng lost 1.1 per cent while China’s Shanghai Composite dipped 0.4 per cent amid China’s PMI readings fell to 49.5 in March from 50.2 the month before, a sign of contraction as a reading above 50 indicates growth.
Yesterday, the Australian sharemarket closed 0.2 per cent lower at 7,500. For full market action, join me here for “Commodities seen as inflation hedge, pushes ASX higher for March by 5.7%, though 0.2% lower today” as I covered Thursday’s market action.
Taking all of this into the equation, the SPI futures are pointing to a 0.6 per cent fall.
Local economic news
A focus today on the data front will be around the property market. The Australian Bureau of Statistic is set to issue the lending Indicators for February. The data focuses mainly on new home lending commitments. But also there is data on personal, business and lease loans, also CoreLogic is slated to release its national home value index for March.
What to keep an eye out for today
Energy stocks could have a rough day today after the oil price tumbled on news from the Biden Administration and the meeting outcome from OPEC+.
On the broker front, Tabcorp (ASX:TAH) has received a few broker upgrades. Credit Suisse has upgraded its rating to outperform with a price target of $6.20, Goldman Sachs has also put a buy rating and $6.20 price target as well. The brokers note that the demerger is a key catalyst in “unlocking significant shareholder value.”
Bell Potter has cut Uniti’s (ASX:UWL) rating to a hold with a price target of $5.
As for companies, keep an eye out for CIMIC (ASX:CIM) after the company decided to remove its nominee directors from the Ventia board and to waive certain other rights in order to avoid any perceived conflict of interest.
Macquarie Group (ASX:MQG) in the spotlight amid news to expand its presence in the solar sector. The investment banking giant is set to buy a 50 per cent stake in Island Green Power, a U.K.-based renewable energy developer.
Eligible shareholders of Suncorp (ASX:SUN), Telstra (ASX:TLS), and Treasury Wine Estates (ASX:TWE) are set to receive a dividend payment or reinvestment of shares today among the 14 companies slated to pay.
There are three companies set to trade without the right to its dividend.
Gold Road Resources (ASX:GOR) is paying 0.5 cents fully franked
NB Global Corporate Income Trust (ASX:NBI) is paying 0.8049 cents unfranked
PM Capital Global Opportunities Fund (ASX:PGF) is paying 5 cents fully franked
There are 14 companies set to pay eligible shareholders today
Capitol Health (ASX:CAJ)
G8 Education (ASX:GEM)
Genesis Energy (ASX:GNE)
Insignia Financial (ASX:IFL)
K & S Corporation (ASX:KSC)
L1 Long Short Fund (ASX:LSF)
Mercury Nz (ASX:MCY)
Prime Financial Group (ASX:PFG)
Silk Logistics Holdings (ASX:SLH)
Suncorp Group (ASX:SUN)
Telstra Corporation (ASX:TLS)
Treasury Wine Estates (ASX:TWE)
Iron ore has gained 0.1 per cent to US$158.30. Its futures point to a 0.5 per cent gain.
Nickel lost 2.5 per cent and aluminium fell 1.6 per cent on lower geopolitical tensions between Russia and Ukraine. Zinc rose 1.5 per cent.
Gold has gained $3.20 or 0.2 per cent to US$1,942 an ounce. Silver is down $0.13 or 0.5 per cent to US$24.98 an ounce.
Oil has lost $7.02 or 6.5 per cent to US$100.80 a barrel.
One Australian Dollar at 7:45 AM has weakened from yesterday, buying 74.84 US cents (Thu: 75.13 US cents), 56.95 Pence Sterling, 91.09 Yen and 67.63 Euro cents.